GST Council may review sliding revenue, compliance

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‘Meeting assumes significance ahead of Feb. 1 Budget, which would still be used to announce policy changes relating to the new indirect tax’

The Goods and Services Tax Council’s meeting today is expected to focus on key fiscal issues such as declining revenue collections and waning compliance, according to tax analysts, who said the Council’s 25th meeting assumes significance, coming less than two weeks before the presentation of the Union Budget on February 1.

“There are two key themes that could dominate the proceedings,” said M.S. Mani, Senior Director at Deloitte India. “Revenue collections under GST have slowed down in the past few months and this is an area that would require extensive deliberations given that we are close to the Union Budget.”

The government collected ₹92,283 crore in July, ₹90,669 crore in August, ₹92,150 crore in September, ₹83,346 crore in October and just ₹80,808 crore in November, the latest period for which data is available.

While a bulk of the indirect taxes would no longer be a part of the Budget announcements, having been subsumed by GST, analysts said that the Budget would still be used to announce policy changes to do with the new indirect tax.

Council’s nod needed

“Any of the changes to the GST laws will have to first be approved by the GST Council, and then they will be part of the Budget announcement,” said Sachin Menon, National Head of Indirect Tax at KPMG India. “Otherwise the Budget will only deal with some Customs aspects and maybe the excise on fuel.”

A key change expected to be announced is the increase in the eligibility limit of the Composition Scheme — from the current ₹1 crore turnover a year to ₹2 crore.

The GST Council meeting is also expected to deal with some of the procedural issues, such as the number of forms to be filled, and centralised registration for financial services providers.

“Currently the law stipulates three returns to be filed every month,” Archit Gupta, Founder & CEO ClearTax, wrote in a note. “Speculation is that all these three will be merged into one single form. Invoice matching is expected to help companies claim input credit more accurately and avoid surprises. Reconciliation might be taken quarterly.”

“The inclusion of petroleum and petroleum products under GST is another speculation, which is a burning concern for several industries,” Mr. Gupta added. “Centralised registration for service providers like banks, financial institutions and insurance firms are also expected.”

Another key concern was the waning compliance rate, according to Deloitte India’s Mr. Mani, who said the issue needed the Council’s immediate attention.

“There has also been a reduction of 10% in the number returns filed compared to initial months,” Mr. Mani said. “This is a worrying trend considering the fact that the objective of GST was to expand the tax base and thereby improve collections. While some reduction in compliance in recent months can been attributed to the technology challenges faced by taxpayers and some amount of uncertainty due to the multiple extensions in the return filing timelines, arresting the trend of declining returns needs significant attention.”

Several industry and services sectors have also raised demands for lowering the applicable GST rates. The Indian Biscuit Manufacturers’ Association on Tuesday sought a reduction in the rate on biscuits to 12% from 18%, contending that biscuits were a mass consumption product that was mostly consumed by the poor.

Similarly, the Biodiesel Association of India urged the GST Council to cut the GST rate on biodiesel from 18% to 5%, arguing that leaving the rate unchanged risked triggering thousands of job losses.

The National Real Estate Development Council on Wednesday asked the GST Council to bring housing under construction under the 12% rate, from the current 18%, with a 50% abatement for land, from the prevailing 33%. This, the body said, would help ease the final tax rate to a level of about 6% of the cost of the property.